Auctions and the three card trick

Public auction involves multiple bidders competing against each other to secure the one item – in this instance residential real estate. This is the simplistic theory of auctions.

In order to get home owners to sign up to an auction, agents use the equivalent of the 3 card trick. They tell home sellers that auction is a 3 phase selling process. You can sell prior to auction, at auction or after auction. It is a normal part of the course to fail at auction and call that a part of the process in determining market price.

The auction system is all about conditioning the seller down to a price where the property sells within the shortest time. Agents in behind closed-door training refer to auctions as “the fastest and best conditioning tool”.

The reason agents push auctions in weak markets is because the transparent bidding process gives the owners a “reality check” if they need it. When the auction publicly stops below the reserve price, the buyers are telling the sellers the price expectation is too high, as opposed to the agent.

The agent’s true motive in selling auction campaigns is because the process works the sellers down in price. If you doubt this, then ask the agent why all auctions start below the reserve price? Less than 50% of auctions achieve the reserve price, causing the seller to pass the property in or drop the reserve price during the auction.

Properties that are passed in at auction then enter phase 3 of the auction process. Any hopes of achieving a high price are dashed as many buyers view properties that fail at auction as damaged goods.

If you sign up to an auction envisioning a crowd in your backyard ferociously competing to secure your home, be aware – your agent may have different ideas. Instead of signing up to an auction, you may have fallen for the 3 card trick.